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Milan stocks end week on a soft note as UniCredit takes a tumble

by Andrea Fontana

European stock prices closed moderately lower, snapping a recent rally driven by banking shares and growth prospects from US President Donald Trump’s expansive policies.
The region's stock markets hit one-year highs earlier this week as banking stocks rallied.
Sentiment was subdued after data showed the US economy slowed down in the last quarter of 2016, posting a 1.9% growth compared to 3.5% in the previous quarter.

The London FTSE 100 closed up 0.32% at 7,184.49 points, the Frankfurt DAX lost 0.29% at 11,814.27 points, the Paris CAC 40 dipped 0.56% to 4,839.98 points, in Milan the FTSE MIB lost 0.57% at 19,329.26 points and in Madrid the IBEX 35 ended down 0.09% at 9,504.10 points.

On Friday Italy’s Treasury sold €6.5 billion of six-month bills in an auction, the Bank of Italy said, with the average yield rising to -0.286% from -0.317% at the previous auction in December. The bid-to-cover ratio on the auction was 1.56. The differential between yields on 10-year Italian government bonds and their German counterparts fell slightly to 1.77 percentage points from 1.78 at the close on Thursday.

In other news, the Atlante II bank fund said it has signed a memorandum of understanding for the acquisition of a portfolio of €2.2 billion in nonperforming loans from three small-sized Italian banks bailed out in 2015.

Atlante II said it would buy the loans of the three banks - Banca Marche, Banca Etruria and Carichieti - for a maximum investment of €515 million. Atlante II will acquire the mezzanine and part of the junior tranche of the three banks’ bad loans to placed in a securitization vehicle.

Among blue chips, shares in the Italian bank UniCredit ended down 5.17% on profit taking after a recent rally and concern about the terms of the bank’s planned €13 billion capital increase.

According to the daily Il Messaggero, UniCredit’s capital increase could start on February 6 and be carried out at a discount close to 40% of theoretical ex-rights price (TERP). A broker said that it was expecting a discount of 30% on TERP.

“We believe that a discount of 40% would be a negative for the stock,” the broker added.

There is media speculation that UniCredit could unveils the terms of the rights issue next week, possibly Wednesday or Thursday.

In the manufacturing sector, Franco-Italian chip maker STMicrolecronics rose 3.64% after brokerage Equita raised its recommendation on the stock to ’buy,’ pointing to increased visibility on profit growth. Equita also raised its target price for STMicro shares to €14 from a previous €10.8.

“Yesterday was the third consecutive quarter in which we had a positive surprise on the growth of revenue and margins,” Equita analysts wrote. Equita noted that STMicro management also expects “significant” growth in revenue in 2017 and following years, along with careful control of operating expenses. Equita also expects STMicro will be able to capitalize on megatrends like smart driving and the Internet of things.

Finally Telecom Italia lost 1.23% despite news that US investor group BlackRock has built a 5.5% stake in Telecom Italia, according to a December 31 filing with the US Security and Exchange Commission. According to the Italian telecoms group’s website, BlackRock had 3.101% of Telecom Italia as of November 15, 2016. The 5.5% stake confirms BlackRock as the second-largest shareholder in Telecom Italia behind French media group Vivendi (23.9%).
Previously, BlackRock had already owned around 5% in the Italian group.